Firms Amid Conflict: Performance, Production Inputs, and Market Competition

Abstract

We study the effect of conflict on firms’ economic performance and explore the underlying mechanisms. Combining an original retrospective panel dataset of Libyan firms with geolocalized data on conflict events, we build a firm-specific measure of conflict exposure and use its within-firm variation to show that the relationship between conflict exposure and performance is convex. This is the result of two opposite mechanisms. Revenues decrease because of the conflict-induced lower availability of production inputs. At the same time, revenues tend to increase for surviving firms that face weaker market competition because of the conflict-induced reduction in the number of competitors.

Keywords: Firms, conflict, market competition, foreign workers, imported inputs, Libya

JEL Classification: C23, D22, D74, L20, O12